TD Bank 2002 Annual Report Download - page 69

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67
FINANCIAL RESULTS
Over-the-counter and exchange traded derivative financial instruments
(billions of dollars)
Trading
Over-the- Exchange 2002 2001
Notional principal counter traded Total Non-trading Total Total
Interest rate contracts
Futures $ – $ 186.9 $ 186.9 $ – $ 186.9 $ 180.1
Forward rate agreements 161.7 – 161.7 65.9 227.6 135.7
Swaps 611.8 – 611.8 221.2 833.0 699.4
Options written 45.4 – 45.4 1.0 46.4 44.2
Options purchased 12.9 .6 13.5 40.8 54.3 51.0
Foreign exchange contracts
Forward contracts 480.0 – 480.0 33.3 513.3 478.7
Swaps 10.3 – 10.3 – 10.3 9.0
Cross-currency
interest rate swaps 86.1 – 86.1 20.8 106.9 97.1
Options written 29.3 – 29.3 – 29.3 19.3
Options purchased 22.7 – 22.7 – 22.7 16.7
Other contracts1113.9 16.4 130.3 3.3 133.6 105.1
Total $ 1,574.1 $ 203.9 $ 1,778.0 $ 386.3 $ 2,164.3 $ 1,836.3
1Includes equity, commodity and credit derivatives.
Derivative financial instruments by term to maturity
(billions of dollars)
Remaining term to maturity
Within 1 to 3 3 to 5 Over 5 2002 2001
Notional principal 1 year years years years Total Total
Interest rate contracts
Futures $ 140.8 $ 46.1 $ – $ – $ 186.9 $ 180.1
Forward rate agreements 210.5 17.1 – – 227.6 135.7
Swaps 428.7 149.5 94.5 160.3 833.0 699.4
Options written 22.8 12.4 6.5 4.7 46.4 44.2
Options purchased 28.6 17.3 4.9 3.5 54.3 51.0
Foreign exchange contracts
Forward contracts 493.6 18.9 .7 .1 513.3 478.7
Swaps 1.1 1.4 2.8 5.0 10.3 9.0
Cross-currency
interest rate swaps 33.6 22.2 16.4 34.7 106.9 97.1
Options written 27.9 1.3 .1 – 29.3 19.3
Options purchased 22.0 .6 .1 – 22.7 16.7
Other contracts139.7 35.4 40.6 17.9 133.6 105.1
Total $ 1,449.3 $ 322.2 $ 166.6 $ 226.2 $ 2,164.3 $ 1,836.3
1Includes equity, commodity and credit derivatives.
The Bank is exposed to market risk as a result of price volatility
in the derivatives and cash markets relating to movements in
interest rates, foreign exchange rates, equity prices and credit
spreads. This risk is managed by senior officers responsible for
the Bank’s trading business and is monitored separately by the
Bank’s Risk Management Division.
The estimated fair value of exchange traded derivative financial
instruments is based on quoted market rates
plus or minus daily
margin settlements
. This results in minimal fair values as these
instruments are effectively settled on a daily basis. The estimated
fair value of over-the-counter derivative
financial instruments is
determined using valuation models that incorporate
prevailing
market rates and prices on underlying instruments with
similar
maturities and characteristics. The fair value of over-the-counter
derivative financial instruments also reflects the impact of
valuation adjustments
which recognize the need to cover market,
liquidity and credit risks, as well as the cost of capital and
administrative expenses over the life of the contract.